The Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2020

Amendment of the Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018 U.K.

4.—(1) The Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018 F1 are amended as follows.

(2) In regulation 1(4) (interpretation), in the definition of “the EMIR Regulation” for “as amended by Regulation (EU) 2019/834 of the European Parliament and of the Council of 20 May 2019” substitute “ as last amended by Regulation (EU) 2019/2099 of the European Parliament and of the Council of 23 October 2019 ”.

(3) Omit regulation 8 (recognition of a third country CCP).

(4) In regulation 11 (interpretation) in the appropriate places insert the following definitions—

““clearing member” means an undertaking which participates in a central counterparty and which is responsible for discharging the financial obligations arising from that participation;

“client” means an undertaking with a contractual relationship with a clearing member of a central counterparty which enables that undertaking to clear its transactions with that central counterparty;”.

(5) In regulation 13 (deemed recognition pursuant to Article 25 of the EMIR Regulation), after paragraph (5) insert—

“(5A) The fifth condition is that the applicant has not been determined as systemically important or likely to become systemically important in accordance with regulation 13A and is therefore a Tier 1 CCP.”.

(6) After regulation 13, insert—

“Determination of systemic importance

13A.— (1) The Bank of England must determine whether the applicant is systemically important or likely to become systemically important for the financial stability of the United Kingdom (a “Tier 2 CCP”) by taking into account all of the following criteria—

(a) the nature, size and complexity of the applicant's business in the United Kingdom, and outside the United Kingdom to the extent that its business may have a systemic impact on the United Kingdom, including—

(i) the value in aggregate terms and in pounds sterling of transactions cleared by the applicant, or the aggregate exposure of the applicant engaged in clearing activities to its clearing members and, to the extent the information is available, their clients and indirect clients established in the United Kingdom, including where they have been identified by the PRA as other systemically important institutions (O-SIIs) in accordance with regulation 29 of the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014 F2 ; and

(ii) the risk profile of the applicant in terms of, amongst other things, legal, operational and business risk;

(b) the effect that the failure of, or a disruption to, the applicant would have on—

(i) financial markets, including the liquidity of the markets served;

(ii) financial institutions;

(iii) the broader financial system; or

(iv) the financial stability of the United Kingdom;

(c) the applicant's clearing membership structure including, to the extent the information is available, the structure of its clearing members' network of clients and indirect clients, established in the United Kingdom;

(d) the extent to which alternative clearing services provided by other central counterparties exist for clearing members and, to the extent the information is available, their clients and indirect clients established in the United Kingdom;

(e) the applicant's relationships, interdependencies, or other interactions with other financial market infrastructures, other financial institutions and the broader financial system to the extent that it is likely to have an impact on the financial stability of the United Kingdom.

(2) Without prejudice to the outcome of determination under regulation 13, the Bank of England must, after conducting the assessment in accordance with paragraph (1), inform the applicant whether it is considered to be a Tier 1 or Tier 2 CCP.

(3) On and after IP completion day, an assessment under this regulation is to be taken as having been carried out in accordance with Article 25.2a of the EMIR Regulation.

Conditions for Tier 2 CCPs

13B.— (1) Where the Bank of England determines that the applicant is a Tier 2 CCP in accordance with regulation 13A, it may only determine that the central counterparty should be taken to be recognised pursuant to Article 25 of the EMIR Regulation to provide certain clearing services or activities where, in addition to meeting the conditions in paragraphs (2) to (5) of regulation 13, each of the following conditions are met.

(2) The first condition is that the applicant complies with the requirements set out in Article 16 and in Titles IV and V of the EMIR Regulation, as it has effect in EU law as amended from time to time (taking into account, in accordance with regulation 13C, the extent to which the applicant's compliance with those requirements is satisfied by compliance with comparable requirements applicable in that third country).

(3) The second condition is that the applicant has provided the Bank of England with—

(a) a written statement, signed by its legal representatives, expressing the unconditional consent of the applicant to—

(i) provide within the time specified in a request by the Bank of England, any documents, records or information and data held by the applicant at the time the request is served, and

(ii) allow the Bank of England to access any of the applicant's business premises;

(b) a reasoned legal opinion by an independent legal expert confirming that the consent expressed is valid and enforceable under the relevant applicable laws.

(4) The third condition is that the applicant has implemented all the necessary measures and established all necessary procedures to ensure the effective compliance with the conditions set out in paragraphs (2) and (3).

Comparable compliance

13C.— (1) An applicant which has been determined to be a Tier 2 CCP may request that the Bank of England assesses whether its compliance with the applicable third country framework, taking account of the regulations made under regulation 14, may be deemed to satisfy compliance with the requirements in Article 16 and Titles IV and V of the EMIR Regulation.

(2) The request shall include an explanation of why compliance with the requirements applicable in the third country satisfies the requirements set out in Articles 16 and Titles IV and V of the EMIR Regulation.

(3) On and after IP completion day, a request made under this regulation is to be treated as if it were made in accordance with Article 25a of the EMIR Regulation.

(4) A reference to the EMIR Regulation in this regulation is to the EMIR Regulation as it has effect in EU law as amended from time to time.”.

(7) In regulation 15(2) (Bank's power to advise Treasury on regulatory equivalence of central counterparties), for “Article 25.6A” substitute “ Article 25.6ZA ”.

(8) In regulation 16 (co-operation arrangements between the Bank of England and the competent authorities of third countries before IP completion day) F3 , for paragraph (2) substitute—

“(2) Such arrangements are to specify such matters as the Bank of England considers appropriate, and may include—

(a) the mechanism for the exchange of information between the Bank of England and the competent authority, including access to all information requested by the Bank of England regarding central counterparties authorised in that third country, such as significant changes to risk models and parameters, extension of central counterparty activities and services, changes in the clients account structure and in the use of payment systems that substantially affect the United Kingdom;

(b) the mechanism for prompt notification to the Bank of England where the competent authority deems a central counterparty it is supervising to be in breach of the conditions of its authorisation or of other law to which it is subject;

(c) the mechanism for prompt notification to the Bank of England by the competent authority where a central counterparty it is supervising has been granted the right to provide clearing services to clearing members or clients established in the United Kingdom;

(d) the procedures concerning the coordination of supervisory activities;

(e) the procedures necessary for the effective monitoring of regulatory and supervisory developments in a third country;

(f) the procedures for third-country authorities to assure the effective enforcement of decisions adopted by the Bank of England;

(g) the procedures for third-country authorities to inform the Bank of England promptly of any emergency situations relating to the recognised central counterparty, including developments in financial markets, which may have an adverse effect on market liquidity and the stability of the financial systems of the United Kingdom and the procedures and contingency measures to address such situations.”.

(9) In regulation 17(7) (eligibility for temporary deemed recognition), for “Article 25.5” substitute “ Article 25p ”.

F1 S.I. 2018/1184.

F2 S.I. 2014/894. Regulation 29 is amended by S.I. 2018/1401.

F3 The heading to regulation 16 is amended by regulation 7 of S.I. 2020/56.

Commencement Information

I1 Reg. 4 in force at 25.6.2020, see reg. 1(2)